RBI Rescues the Indian Economy with One-Time Restructuring Loans

Amid the COVID-19 pandemic that has stalled the Indian economy as never seen before, the Reserve Bank of India (RBI) on August 6, 2020, allowed a one-time restructuring of corporate and personal loans to help them cope with the financial stress. Restructuring of loans will be permitted as per the prudential framework of June 7, 2019, clarified the RBI.

While announcing the monetary policy, RBI Governor Shaktikanta Das announced to create a committee lead by former ICICI Bank CEO K.V. Kamath. The committee will be responsible for giving recommendations on how the restructuring of loans will be executed, he added.

Since the country was put under complete lockdown in March 2020, India has been looking for ways and introducing measures from time to time to revive its economy damaged by a coronavirus. The RBI’s one-time restructuring plan has relieved many corporate and retail borrowers, who are neglected of a central bank moratorium on loan servicing.

However, the restructuring includes personal loans, excluding those allocated to the staff of the lending institutions, and the RBI will prescribe a separate framework for it.

The RBI’s decision came in the wake of Finance Minister Nirmala Sitharaman’s announcement of the government working in collaboration with the RBI to propose a restructuring of loans to help the industry mitigate financial risks caused by COVID-19.

Furthermore, bankers and the Indian Banks Association had also given their recommendations on a one-time loan restructuring to the RBI.

Going further with its decision, the RBI said that only the standard accounts, which were not with any lending organization on March 1, 2020, would be eligible for the restructuring.

The resolution plan may be summoned before December 31, 2020, and should be applied in 180 days from the date of acknowledgment, the RBI said in its Statement on Developmental and Regulatory Policies.

Speaking on how the restructuring will work for personal loans, the RBI said they would not need to be validated by the expert committee or by credit rating agencies, and there will also be no requirement for inter-creditor agreement.

With this significant announcement, the RBI extends the restructuring facility to large corporates, MSMEs and retail sectors, and individuals. Also, this resolution framework will support the financial industry and help stabilize the national economy.